Cash Back Mortgages – There’s no FREE Lunch!!

KellyHudsonMortgages • January 30, 2016

Cash Back Jan2016

You often see Cash Back Mortgage ads as a lure from the major banks offering cash back incentives on their Mortgage products. Cash back mortgages are becoming increasingly popular among borrowers, particularly those who have limited down payments.


So here’s some quick words of advice.  STAY AWAY FROM CASH BACK Mortgage offers!

What is a Cashback Mortgage? The deal is simple. Various lenders offer cash back programs, allowing a percentage of the property’s Mortgage value to be rebated to the borrower upon closing. The bank gives you cash up front to use however you want, except as the down payment .

The cashback on mortgage option can definitely help when it comes to paying closing costs, but borrowers should be aware that these products come with catches:

1) Higher interest rates The cost of the upfront cash is a much higher interest rate — usually about 2% higher than a Mortgage Broker negotiated rate. The higher interest rate is what pays for the cash the bank is “giving” you.

The homeowner would be pay a significantly higher amount of interest over the term of the mortgage. Homeowners need to crunch the numbers to calculate what’s more worthwhile:

  • Continue to rent and save for your down payment & closing costs
  • Overpay in interest, with the hopes of becoming a homeowner and eventually compensating for the higher interest rates with a possible increase value in the property.
Cash Back Mortgage Amount Mortgage Broker – Mortgage Amount Difference:
Mortgage Amount: $400,000.00 Mortgage Amount: $400,000.00  
Interest Rate: (%) 4.99% Interest Rate (%): 2.99% 2.00%
Amortization: 25 years (300 months) Amortization: 25 years (300 months)  
Term: 5 years Term: 5 years  
Payment Frequency: Monthly Payment Frequency: Monthly  
Compounded: Semi-annually Compounded: Semi-annually  
         
MORTGAGE SUMMARY (based on the above terms)
Payment Amount: $   2,324.14 Payment Amount: $   1,890.93 $ (433.21)
       Total Interest: $ 93,422.98     Total Interest: $55,288.49  
       Total Principal: $ 46,025.42     Total Principal: $48,167.13  
Total Payments: $139,448.40 Total Payments: $103,455.62 $(35,992.78)
Balance Remaining @ Maturity: $353,974.58 Balance Remaining @ Maturity: $341,832.69 $(12,141.89)
Difference       -$48,134.67

$48,000 difference over 5 years. It’s pretty clear why a Cash Back Mortgage is not a great deal for the consumer and why I discourage it’s use.

2) Clawback penalties: If you need to break your mortgage, whether to sell or refinance your home before your mortgage term is complete.… you have to pay the Penalty PLUS return the Cash Back portion to the bank. The Cash Back Penalty is sometimes prorated sometimes NOT depending on the lender, check the fine print of your contract.

3) Variable rates are not available: Another downside to cash back mortgages, is that they are not available for variable rates. For people who can tolerate fluctuating variable interest rates, variables have shown the potential over the long term to save you interest. That option is not available with a cash back mortgage.

4) Limited availability: Most lenders offering Cash Back Mortgages are looking for A+ borrowers with a solid credit profile, steady provable income, and typically 5% or more down payment.

5) The Office of the Superintendent of Financial Institutions (OSFI) reiterated it doesn’t like the Cash Back Mortgage practice at all, recommending mortgage default insurers not underwrite loans that use cash back for a down payment.

READ the FINE PRINT – Many people miss the fine print on lender’s websites and in their mortgage contract. When a deal seems to be too good to be true, there is always a catch… There is NO Free lunch!

If you have any further questions about cashback mortgages or any other mortgage products, please call me at 604-312-5009

Kelly Hudson

Mortgage Expert

Mobile: 604-312-5009

Kelly@KellyHudsonMortgages.com

www.KellyHudsonMortgages.com


 

Kelly Hudson
MORTGAGE ARCHITECTS
RECENT POSTS 

Joint Tenants vs. Tenancy in Common – What You Need to Know When Purchasing a Home!

By Kelly Hudson • March 6, 2026
Decisions relating to real estate can have significant financial and legal consequences. Before deciding how to share ownership of what is likely one of the largest investments of your life, I recommend consulting a real estate lawyer. Many Canadians purchase property together — including spouses, common-law partners, family members, friends, and business partners. Because ownership structure affects estate planning, taxes, creditor exposure, and control over the property, it’s important to understand your options before you sign. In Canadian property law, there are two primary forms of co-ownership: Joint Tenancy Tenancy in Common While these terms may sound similar, they have very different legal and financial effects — particularly if one owner dies, sells their interest, separates, or faces creditor claims.

Reverse Mortgages in Canada: The Pros and Cons

By Kelly Hudson • February 18, 2026
If you’re 55 or older and own your home, chances are you’ve heard about reverse mortgages. Sometimes they’re described as a “retirement lifesaver.” Other times they sound risky or confusing. The truth? They’re neither magical nor terrible. They’re simply a financial tool — and like any tool, they work well in some situations and not so well in others – EDUCATION is the key! Let’s break it down in plain English. So… What Is a Reverse Mortgage? A reverse mortgage allows you to borrow money against the value of your home — without making monthly mortgage payments. Instead of you paying the lender every month, the interest gets added to the balance. The loan is typically repaid when: The home is sold You move out permanently Or you pass away In Canada, reverse mortgages are currently offered by: HomeEquity Bank (CHIP Reverse Mortgage) Equitable Bank Bloom Financial You still own your home and your name stays on title. That part often surprises people. How It Works (Simple Version) To qualify: You must be 55 or older You must own your home (you can still have a regular mortgage — it just needs to be paid out) You can usually borrow up to about 55% of your home’s value (the older you are, the more you may qualify for) You don’t make monthly payments. But you must continue to: Pay property taxes Keep home insurance in place Maintain the home The money you receive is tax-free. It can come as: A lump sum Monthly advances Or a combination of both That flexibility is one reason many retirees like this option. Why Do People Consider Reverse Mortgages? Most of the homeowners I speak with aren’t looking for luxury spending money. They’re trying to solve real life situations: Covering rising living costs Paying off debt before retirement Managing health or care expenses Staying in their home longer Helping adult children with a down payment For many Canadians, their house is their largest asset — but it doesn’t create monthly income. A reverse mortgage turns some of that home equity into usable cash. The Pros (The Reasons People Like Them) 1. No Monthly Mortgage Payments This is the big one. If you’re living on CPP and OAS, removing a monthly mortgage payment can dramatically reduce stress. Cash flow improves immediately. 2. You Can Stay in Your Home Most people I meet don’t want to move. They love their neighborhood. Their friends are nearby. Family visits often. A reverse mortgage can allow you to age in place instead of selling before you’re ready. 3. The Money Is Tax-Free Because it’s borrowed money — not income — it does not affect: Old Age Security (OAS) Guaranteed Income Supplement (GIS) That’s a major advantage compared to withdrawing from investments. There are no rules about spending. Some clients use the funds to stay in place – health care at home. Some clients renovate. Some travel. Some gift funds to children. Some simply create a safety cushion. It’s your equity – you decide. 5. You Keep Ownership The bank does not own your home. As long as you live in your home, maintain it, insure it, and pay property taxes — you own your home and can stay. 6. No Negative Equity Guarantee In Canada, reverse mortgages include protection so that you (or your estate) will never owe more than the home is worth — even if property values decline. That protection matters.